Time To Promote Climate Fintech For Individuals

By Nidhi Mehra January 28, 2023

To achieve a significant increase in green investments, we need targeted policy, necessary institutional and regulatory interventions, and governance mechanisms to reallocate capital through banks, institutions and capital markets

Time To Promote Climate Fintech For Individuals
The new era of climate-fintech should be promoted for individuals. DepositPhotos

Given India’s size, booming economy and increasing prominence, India has taken the global lead in the fight against climate change. While hastening her arrival at Net Zero by  2070, India has increased its Nationally Determined Contribution (NDC) target to include a 500 GW non-fossil energy capacity, 50% renewable energy, and a 45% decrease in carbon intensity by 2030. India’s lofty targets for cutting energy consumption will save money for households and businesses while easing pressure on the government to build a green energy grid.

Getting to net zero would necessitate spending money on renewable energy, transportation, shipping and aviation, and difficult to change manufacturing and industrial processes. To achieve this goal, money must be put into green hydrogen technology, battery storage, and renewable energy generation. 

To construct 500 GW of non-fossil capacity, India will need to spend Rs 22.5 trillion (Rs 4.5 million/MW). The Central Energy Agency (CEA) puts the price tag for the infrastructure needed to power India with renewable energy at Rs 2.44 trillion. It is estimated that by 2030, India's battery potential (for stationary and non-stationary purposes) will reach 600 GWh, necessitating an expenditure of Rs 5 trillion (at USD 100/kWh), according to the National Institution for Transforming India (NITI Aayog).

By 2030, India plans to invest Rs 8 trillion in environmentally friendly hydrogen fuel. Putting money into downstream technology for manufacturing, transportation on land, intercity travel, etc. For India to achieve its climate change and net-zero energy targets by 2030, the country will require green finance of Rs 11 trillion, which is 3.5 times the yearly Rs 309 trillion, according to Climate Policy Initiative’s (CPI) Green Finance Landscape Report (FY20). In FY19 and FY20, domestic funding accounted for 87% and 83% of green financing, respectively.

India has to look at legislative, regulatory, and institutional answers to these problems before drafting its national budget so that more money may be allocated to green investment. The establishment of a green bank or other Indian financial institutions to provide specialised funding is an urgently needed response. Although existing and future public financial institutions have the wherewithal to make green investments, they lack the tools to assess them, the expertise to construct financing structures for various segments, and the credibility to attract green capital from around the world.

In order to facilitate this, the new era of climate-fintech should be promoted for individuals. As a result, a massive green bank and carbon credit reserve can be established through people's individual actions.

To encourage this course of action on the part of taxpayers, we need the policies that push through tax rebates under Sections 80C, 80D, and 80G, in that order. Providing a tax break, as has been done with electric vehicles, will also encourage and alter this pattern of behaviour. India, despite its status as a poor nation, will receive a significant boost in its efforts to implement the Mission LiFE and has the potential to become the largest trader of carbon credits to western countries, boosting its gross domestic product.

Reforms to energy infrastructure and the establishment of a domestic cap-and-trade carbon market are mandated by the revised Energy Conservation Act. In theory, if the Act is put into effect, it will create sufficient incentives to reduce the carbon footprint of all economic activity, and financial instruments based on underlying carbon prices will be able to become a legitimate asset class subject to proper financial market regulations. National and state budgets can be more easily monitored for their NDC investments if green budgeting and green-tagging practices are implemented.

Stimulating global green capital flows from international banks and asset owners requires lowering barriers to external commercial borrowing, increasing FPI investment limits for green products like green bonds, and adopting a standard taxonomy and reporting framework for green investments. Domestic financial intermediation for green industries and businesses can benefit from targeted funding from insurance and pension funds.

India has a massive budget deficit and needs to increase its green investments in all areas, but especially in its energy industry, which is still over 80% carbon-intensive. To achieve such a significant increase in green investments, we need targeted policy, the necessary institutional and regulatory interventions, and governance mechanisms (like the sovereign green bond (SGrB) framework and the issuance of SGrBs) to reallocate capital through banks, institutions, and capital markets to green end uses.

(Nidhi Mehra is co- founder of Myplan8, a climate fintech.)